Income Tax Considerations for the Aboriginal Business Owner
Greg Hamilton
November 2009
As an aboriginal business owner you may think that your business income will not be subject to income tax. Depending on where your business income earning activities are located, your conclusion could be incorrect.
Status Indians have commonly relied on Section 87 of the Indian Act for protection from taxation. Section 87 provides that an Indian or band is not subject to government taxation in respect to property situated on reserve. Income earned on reserve is deemed to be property for purposes of Section 87. However, the Section 87 tax exemption has been curtailed as a consequence of a number of court cases over the years.
Perhaps the most important tax case involving business income and Section 87 of the Indian Act was the 1998 Federal Court of Appeal case Henry Southwind vs The Queen. Mr. Southwind lived on reserve and owned and operated a logging contractor business. The case dealt with income earned from business activities performed off reserve. Even though Mr. Southwind lived on reserve, stored his equipment on reserve and carried out the administration functions of his business on reserve, the court determined that the business income in question was subject to income tax. The most important factor in the court’s decision was where the income was actually generated. In determining where the income is generated, the place where the work is performed and the location of the customer will be important factors.
The Canada Revenue Agency’s (“CRA”) position in respect to business income earned by a status Indian is that the business income will be taxable if the situs of the business income is off reserve. The two key factors in CRA’s determination of the situs will be the location where the income earning activities are carried out and the location of the customers. CRA is of the view that it is the location of the actual income generating activities that is important and not the location of activities such as bookkeeping or maintenance of books and records.
In conclusion, if you are an aboriginal business owner and you are carrying on some or all of your income earning activities off reserve, you could be subject to income tax. If this is the case, your professional advisor should be consulted with to determine if any planning opportunities are available.
Greg Hamilton CA, is a Partner in the Vernon office of BDO Dunwoody LLP and can be reached at 250.545.2136 or ghamilton@bdo.ca.
This material is general in nature and should not be relied upon to replace the requirement for specific professional advice.
Learn more about our services for Aboriginal Businesses
